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Baker Sees '13 U.S. Rig Count Down 8%, Well Count Off 4%

Baker Hughes Inc. is optimistic about North America for the second half of 2013, but sector leader Schlumberger Ltd. still expects an oversupplied pressure pumping market.

Baker Hughes Inc. executives on Friday said the total U.S. rig count should fall on average by 8% this year from 2012, but with better drilling efficiencies, the onshore well count may only decline by 4% to around 35,000.

Baker and Schlumberger Ltd. both unveiled 2Q2013 earnings reports on Friday, and executives also provided their forecasts for the rest of the year. Baker derives more than half of its income from North America, while the sector leader has only about one-third of its business focused in the United States and Canada.

"In the U.S., we are reducing our onshore rig projections from our last guidance," said Baker CEO Martin Craighead. "However, activity is still projected to improve. In the second quarter, we exited with 1,692 rigs. We anticipate that the rig count will rise modestly to an average of 1,720 rigs by the fourth quarter or an increase of about 30 rigs between now and the end of the year.

"The forecast for U.S. offshore rigs remains unchanged, with an average of 52 rigs in 2013, which is an increase of four deepwater rigs or 8% compared to 2012." According to Baker, the total average 2013 U.S. rig count now is projected to be 1,765 rigs, composed of about 1,385 oil rigs and 380 gas rigs, which is off 8% year/year.

"However, we expect that drilling efficiencies will continue to improve during the remainder of 2013," said the Baker CEO. "We currently forecast the U.S. onshore well count for 2013 to be approximately 35,000 wells, which is a reduction of about 4% year/year."

In Canada, Baker sees the average rig count in the second half of 2013 increasing to 335 average rigs in 3Q2013 and 375 rigs in 4Q2013, "slightly better than last year and up from our previous guidance. As a result, Canada's average annual rig count is now expected to be 350 rigs."

Baker also expects to see sequential gains in North American profit margins. "The seasonal return of activity in Canada, increased utilization of our U.S. pressure pumping fleet and continued strong demand for our other product and services in the United States are all expected to improve revenues and operating profit, and operating margins," said Craighead.

Drillers increasingly are sinking more wells from single well sites -- multi-pad drilling -- and that improves the margins for oilfield services companies because of logistics, he explained.

To that end, Baker on Thursday launched an onshore U.S. well count to complement its industry standard U.S. rig count.

"When we compare well count and rig count data side-by-side, we can see that efficiencies in the U.S. are improving and that drilling rigs in some basins are drilling wells faster," said Craighead.

Baker's U.S. pressure pumping business "posted its second consecutive quarter of improved revenue, share and margins, as we executed more stages, with more 24-hour fleets than at any point in our history," said Craighead.

Revenue gains in the United States were partially offset by continued pricing declines, said Baker CFO Peter Ragauss. "Our other product lines in U.S. land also benefited from increased activity and improved drilling efficiencies, realizing higher revenues and profits, including record performance in drillbits, completion systems and upstream chemicals."

Baker's net income in 2Q2013 declined 45% year/year to $240 million (54 cents/share) from $438 million ($1.00). It also failed to earn as much as it did in 1Q2013, when net income was $268 million (60 cents/share). The latest quarter included an inventory charge related to some of its proppants used in North American pressure pumping.

According to Tudor, Pickering, Holt & Co., Baker's North American sequential revenue growth was "rather impressive" with operating margins "down only 70 basis points" from 1Q2013. The miss came in part to Canada, a region that constitutes 14% of total North American revenues. In the spring there was a harsh spring break-up and flooding in Alberta. The North American results imply that U.S. land and the Gulf of Mexico were healthier than they appeared, said analysts.

Schlumberger CEO Paal Kibsgaard told analysts Friday that he expected the U.S. pressure pumping market to remain oversupplied through 2013. The company doesn't do nearly the business in North America's onshore; most of its income in the United States is derived from the Gulf of Mexico and from technology.

On strong international and offshore business, Schlumberger posted quarterly net income that was 49% year/year at $2.1 billion ($1.57/share) from $1.4 billion ($1.05).

While there's been talk about exploration budgets pressured before year-end because of overspending early this year on the oilfield turnarounds to liquids from gas, Kibsgaard said he's more optimistic when it comes to oilfield services spending. "That obviously would be good for our business because that...is where we make most of our money."

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